In a surprising turn of events within the cryptocurrency market, Strategy, formerly known as MicroStrategy, has continued to increase its Bitcoin holdings even as the cryptocurrency has experienced a significant decline in value. As Bitcoin’s price has plunged from its all-time high of $126,000 last October to approximately $68,536, Strategy has purchased an additional 4,871 Bitcoins in just the first week of April, bringing its total to 766,970 Bitcoins.
This unwavering commitment to Bitcoin stands in stark contrast to the behavior of other companies that once touted similar ambitions. The digital asset treasury (DAT) approach, which involved publicly traded companies accumulating Bitcoin through equity or debt issuance, has for the most part dwindled. Last August, non-Strategy treasury firms collectively acquired 69,000 Bitcoins, but by late March of this year, that number had plummeted to a mere 1,000 Bitcoins—a 99% decrease. Furthermore, the number of companies engaged in buying Bitcoin has dropped from 54 to just 13.
Notably, several firms have begun to sell their Bitcoin holdings. For instance, Mara Holdings recently sold $1.1 billion of its cryptocurrency to pay off convertible debt, while Riot Platforms offloaded around $200 million of its reserves late last year. In contrast, Strategy now controls about 76% of all Bitcoin held by publicly listed companies, positioning its holdings as approximately 3.8% of the circulating supply of nearly 20 million Bitcoins. Each Bitcoin acquired by Strategy reduces the available supply for others, potentially increasing the asset’s value if demand persists.
However, questions linger about the sustainability of Strategy’s approach. While the company’s stock has increased by 95% over the past five years and Bitcoin’s value rose by 19%, the long-term implications of continuous Bitcoin acquisition through shareholder dilution pose risks. Strategy raises cash by issuing new equity and convertible debt to finance its Bitcoin purchases. This creates a situation where, should Bitcoin prices not rise as anticipated, shareholders might find themselves holding a smaller percentage of a declining asset.
For shareholders, the risks are palpable. If Bitcoin’s value experiences a drastic downturn, Strategy could be compelled to liquidate its holdings to settle debts, potentially leading to further declines in its stock price. This creates a precarious environment for investors who seek to gain from Bitcoin’s long-term potential without bearing the burdens associated with Strategy’s financial strategies.
For those considering exposure to Bitcoin, experts suggest that direct investment in the cryptocurrency or through a Bitcoin exchange-traded fund (ETF) offers a less risky alternative to buying shares in Strategy. Buying Strategy shares could be perceived as financing the company’s Bitcoin accumulation, which might not benefit long-term investors.
That said, Strategy’s consistent accumulation of Bitcoin could indeed serve as a positive influence on the asset’s market dynamics and justify the company’s bullish outlook on Bitcoin’s future value. However, interested investors may be better served by bypassing the complexities of investing in Strategy’s stock for a more straightforward approach with direct Bitcoin purchases.
